Predictive vs. Diagnostic Investing

Jordan Kimmel  |

If you are around Wall Street you will hear all kinds of predictions...the economy will do this or that, a bio-tech will get an approval, a takeover is eminent…

Some of these come to fruition, most don’t. One of the most empowering realizations I had years ago was that nobody knows the future. Rather than frustrate me, this understanding helps me to operate under a probabilistic methodology. Aaron Brown from AQR helped me to understand this too.

The Poker Face of Wall St. by Brown talks about the need to use odds in your favor, use money management, and to relax and go with the flow. IBD talks about market, sector, stock. How does this all work together?

The diagnostics of the market is about the internals: take an MRI of the market rather than guess what will happen…the A/D line, the number of new highs and lows, the sectors leading and lagging…once you have this part right- it is time to use your watch list- for longs and shorts…

We are currently operating within a Bull Market. We see which sectors are leading. Don’t over complicate your thinking. It should be nothing different the driving your car and adapting to the road conditions. Take it one day and one mile at a time- you can watch the weather reports- but take a look out the window yourself and take all predictions with a grain of salt.

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